Unlocking GST gridlock: CEA panel may give Congress reasons to smile; to recommend 18% RNR

New Delhi: If the chief economic advisor (CEA) panel does recommend a revenue neutral rate (RNR) of 18% under GST today, as is being widely expected, this will show government’s willingness to meet the Congress half way. It is also possible that the second major demand by the Congress - to scrap the proposal of a 1% additional levy to compensate manufacturing states - is also met. [caption id=“attachment_2532958” align=“alignleft” width=“380”]  Reuters[/caption] One of Congress’ key demands has been keeping the revenue neutral rate at 18% under GST when India Inc and states may actually be happier with 20% or higher. It remains to be seen if the NDA government meets the the most contentious demand of the Opposition, which is to specify the GST rate in the Constitution Amendment Bill. A revenue neutral rate means state governments and the Centre will not face any loss from tax collections at this rate though various existing levies will collapse into this single rate for goods and services. A person associated with negotiations on the GST rate told Firstpost 18% seems pretty sensible and that states should not oppose this because they are anyway being guaranteed complete compensation for five years for any revenue loss due to GST. Will India Inc also support this revenue neutral rate, which is lower than what they expected? The person quoted earlier said whatever be the suggestions of the CEA panel, a decision on GST will be political and most likely not based on the economics of this mechanism. According to a report by CNBC-TV18, the CEA panel may also recommend concessional, lower, standard and higher GST rates in its report. The channel quoted sources to say cigarettes, luxury cars and beverages may have a higher GST rate. Precious metals may be taxed at a concessional GST rate. Essential goods and services may also be taxed at a lower GST rate. Another possibility could be that petroleum and tobacco products are included in the GST regime at a later date, with a higher tax rate. Finance Minister Arun Jaitley has already questioned the Congress’ demand to include GST rates in the Constitutional Amendment Bill, saying it would lead to a flawed architecture for the tax. The Goods and Services Tax (GST) is often hailed as the single biggest tax reform in Independent India but its implementation may be delayed unless the government can get it passed in the ongoing winter session of Parliament. According to reports, it seems the Government is also mulling whether to drop the additional 1% levy for manufacturing states under the GST framework and instead compensate states directly. India Inc and the Congress party will be most relieved in this scenario. This 1% conundrum has been vexing corporate India ever since a parliamentary panel suggested this levy for getting manufacturing states like Maharashtra and Tamil Nadu on board. Obviously, northern and eastern states have been opposed to this levy since it becomes an additional cost for them and even the Opposition - or specifically the Congress - has been vehemently opposed to this levy.